How to prevent being declared bankrupt

A company that is no longer able to pay its debts can ask a solicitor specialized in insolvency law to file a petition for bankruptcy. When the court declares the debtor bankrupt a trustee will be appointed who takes care of the liquidation of the company. But what if your creditor files a petition but has no real claim? The court can still declare you bankrupt unless you convince him not to. Dutch insolvency law specialist Sander Schouten explains how.

Creditor files for bankruptcy debtor

Apart from the company itself, also one or more creditors can ask an attorney to file a winding-up petition. This procedure can, however, also be used as an effective means of pressure in debt collecting. The court will then declare bankruptcy if prima facie evidence supports that creditors’ cause of action and the debtor has ceased to pay off debts. Furthermore, there needs to be another creditor besides the petitioner. As the court does not examine the creditors claims thoroughly and a liquidation order is quickly granted, it is up to the debtor to argue the petition and provide information that shows he has not ceased to pay (provided the debtor wants to prevent going into liquidation which is not always the case). The debtor will receive a notice to appear in court to respond to the petition on its registered (office) address. If he fails to show and the court declares the debtor bankrupt, the debtor has to appeal the courts decision at the Court of Appeal.

Dutch case law on appeal of liquidation order

In recent Dutch case law a Court of Appeal overturned a liquidation order on the grounds that there was no prima facie evidence to support the creditors claim in this case. The fact that the debtor also had other creditors was not enough to declare him bankrupt. Besides, the debtor had convinced the Court of Appeal that he had not ceased to pay yet. The debtor suspected that the creditor had ulterior motives to file the petition (the creditor was a landlord who supposedly wanted to get rid of the debtor, his tenant).

Dutch firm on bankruptcy and appeal

When a company is confronted with a winding-up petition filed by one of its creditors, it should always seek legal advice. A solicitor can give an opinion on the case and where possible prepare a defence. That way a costly and time inefficient appeal procedure could be avoided. When you are a creditor and are considering filing a bankruptcy petition, get informed about the feasibility of the petition and the risks and costs of e.g. an appeal. Dutch law firm AMS has attorneys who are very experienced in insolvency law. Our lawyers are regularly appointed as trustees in bankruptcies so they are very aware of the points of interests when dealing with a petition for bankruptcy.